Goodwill on consolidation
Goodwill on consolidation is the excess of consideration paid for a subsidiary over the fair value of its identifiable net assets at acquisition, recognised as an intangible; it is not amortised but tested for impairment annually.
FrameworkConsolidation
What it is
See it move
A parent pays €12.0m for 80% of a subsidiary whose identifiable net assets are worth €9.0m at fair value. The proportionate method gives goodwill of €12.0m minus €9.0m, or €3.0m, covering only the parent's share. The full goodwill method adds the 20% non-controlling interest's fair value of €2.3m before subtracting net assets, giving €5.3m.
The formula
Variables
- Fair value of total purchase price paid — cash, shares, contingent consideration (€)
- Fair value of the subsidiary's identifiable assets less its liabilities at acquisition date (€)
Proportionate share NCI method. A positive residual is recognised as goodwill — not amortised, but tested for impairment at least annually.
Variables
- Fair value of total purchase price paid (€)
- Non-controlling interest measured at fair value at acquisition (€)
- Fair value of the subsidiary's identifiable net assets at acquisition date (€)
Full goodwill method; produces a higher goodwill figure that includes the NCI's share of goodwill, and a higher NCI balance on the balance sheet.
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
When a parent consolidates a subsidiary under HGB, the difference between the price paid for the shareholding and the fair value of the acquired net assets is recognised as consolidation goodwill and carried as an asset in the group balance sheet. Only the goodwill that the parent actually paid for is recognised; no goodwill is grossed up for the share held by non-controlling interests. That capitalised figure is then amortised over its expected useful life, with the familiar ten-year default where the life cannot be reliably estimated, so group profit carries an annual goodwill charge.
IFRS
Under IFRS 3 the acquirer may choose, deal by deal, between measuring goodwill only for its own stake or measuring the full goodwill of the whole subsidiary, including the portion attributable to the non-controlling interest. The full-goodwill option therefore places a larger asset and a larger non-controlling interest on the consolidated balance sheet than HGB would. Whichever measurement is chosen, the goodwill is not amortised; it is tested for impairment every year under IAS 36, and any write-down is allocated first against the goodwill of the cash-generating unit concerned.
Edlintics’ own explanatory summary — not official IFRS Foundation or national standard-setter guidance.